How to Report Section 1231 Gain on Form 1040


For federal income tax purposes, Section 1231 gains result from the sale of depreciable assets that you have owned for more than one year. For example, if you used a building that you own for business and made a profit, you might have a Section 1231 gain. Gains from the sale of property you have held for more than a year are considered long-term capital gains, which are taxed at a lower rate than ordinary income. The term "Section 1231" derives from the section of code in the U.S. tax laws that covers these transactions.

  • List your Section 1231 gains and losses on IRS Form 4797. Use additional forms if needed. If you had any Section 1231 gains from installment sales, also fill out Form 6252. If you had any Section 1231 gains or losses from like-kind exchanges, also fill out Form 8824.

  • Find the total of all your Section 1231 gains and losses on Form 4797, plus any gains listed in Section III of the form, and enter the result on Line 7.

  • If you had any Section 1231 losses during the past five years that you did not report, enter the total of these losses on Line 8. Subtract the prior years' losses from your current year's gains, and enter the result on Line 9. If Line 9 is 0 or less, you do not have to report any Section 1231 gains.

  • Enter the amount from Line 9 of Form 4797 and on Line 11 of Schedule D, "Capital Gains and Losses."

  • Complete the rest of Schedule D, adding your Section 1231 gains to any other capital gains and losses you report. If the final result on Line 16 of Schedule D is a positive number, you will report this amount on Line 13 of Form 1040.

Tips & Warnings

  • Use the "Qualified Dividends and Capital Gains Worksheet" from the Form 1040 Instructions to calculate the taxes on your Schedule D income.


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